International insolvency issues of delocalized structures with special purpose vehicles (SPVs) Articles
- Capital Markets Law Journal Journal
- July 2019
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- Key points Special purpose vehicles (SPVs) i.e. corporations, limited liability companies or trusts set up for aspecific (typically financial) purpose, in securitizations or asset finance transactions, have becomewidespread. They are a useful device to insulate assets, or cash flows, from the risk of insolvency ofthe transaction sponsor (basic bankruptcy remoteness). In some cases, this insulation issupplemented with contract and corporate devices whose purpose is to limit the likelihood thatbankruptcy proceedings will be entertained over the vehicle itself (enhanced bankruptcy remoteness). Despite their usefulness, their absence of physical links with a particular territory poses uniquechallenges from an international insolvency perspective, from establishing whether the vehicle canbe insolvent, to determining the competent jurisdiction or the relevance of connecting factors incases where the parties try to avoid a specific country. In some cases, transactions using SPVs may be subject to certain statutory rules (eg securitizationstatutes) that do not clarify whether (cross-border) insolvency rules may apply to fill the gaps. Inothers, the parties may have designed the vehicle as bankruptcy remote in an 'enhanced' sense, ie toprevent the vehicle from entering bankruptcy proceedings but still needing cross-borderenforcement, eg to stay individual actions, liquidate assets or distribute proceeds, or a thirdparty may seek to declare insolvency over the vehicle. This may expose the friction between thelogic of bankruptcy remoteness and that of insolvency rules.